It’s truly been an impressive run for Advanced Micro Devices (NASDAQ:AMD). The AMD stock price was under $10 as recently as late April. But a stampede to buy AMD stock has led it to more than triple in less than six months.
There are plenty of good reasons for the gains. AMD is becoming a legitimate rival to Intel Corporation (NASDAQ:INTC) after long being a distant second. It’s challenging Nvidia (NASDAQ:NVDA) in GPUs and both companies in datacenter. AMD simply is a markedly better company than it was just a year or two ago.
And after being a skeptic for some time, I’ve argued that investors should buy AMD. Just five weeks ago, I argued that the improvements in the business were more important than a seemingly stretched stock price.
But the AMD stock price has risen another 20% since then, and I’ll admit to wondering if the stock needs to take a bit of a breather. It appears that analysts are seeing it that way. And while the Street hasn’t always been right when it comes to AMD, investors may start thinking the same thing at this point.
The AMD Stock Price Clears $30
Again, it’s truly been an impressive run. Over $20 billion in value has been added to AMD’s market capitalization. And what’s particularly interesting is that it’s come at a time when the chip space hasn’t performed all that well.
Intel stock has pulled back about 18% from its early June highs. Micron Technology (NASDAQ:MU) hit a seven-month low just a couple of weeks back. Equipment manufacturers Applied Materials (NASDAQ:AMAT) and Lam Research (NASDAQ:LRCX) have struggled as well.
But that caution toward the sector may make its way to the AMD stock price at some point. Bernstein came out last week with a “Neutral” rating on AMD, citing concerns about rising inventories in the industry and the potential impact of a trade war.
Meanwhile, AMD no doubt benefited from weakness at Intel. But that company’s progress toward 10nm appears better than feared, which in part led AMD to drop 5% on Friday.
The other catalyst was a downgrade at Northland Securities to “market perform.” Analyst Gus Richard cited “irrational expectations” in cutting the rating and putting a price target of $30. And Richard has a point, at least from a headline perspective . AMD now trades at 46x next year’s earnings estimates. That’s a huge number in the chip space.
Buy AMD Stock Here?
And so at the least it wouldn’t be terribly surprising to see AMD pull back. Bear in mind that the stock spent most of 2017 and the first few months of 2018 trading sideways at best.
Early 2017 highs above $15 faded to early 2018 levels below $10. While I remain bullish on the business, AMD still is second in gaming, a distant third in datacenter (for now), and remains reliant on a PC business whose strength has surprised even Intel.
It’s a good story but it’s not a perfect story. I can see why the Street might be advising some caution here, and why investors might want to listen.
AMD, again, has tripled. It’s given gains back before. The sector looks a bit dicey. Cryptocurrency concerns seem resolved, but PC growth may fade again. And the price for AMD is getting to the point where something close to perfection is baked into Q3 earnings later this month.
That’s not to say I’m turning bearish on AMD or to argue that it hasn’t deserved its recent gains. It has. But history shows that what goes up sometimes comes back down, at least a little bit. And investors should at least consider that near-term risk in the context of what remains a very attractive long-term story.
As of this writing, Vince Martin has no positions in any securities mentioned.